Does interest rate subsidy really promote the financing of farms? The case of the wilaya of Laghouat in Algeria

Abstract

Algerian farms are faced with significant financing difficulties, which considerably limit their production capacity. Their difficulty in accessing bank credit is largely due to the unavailability of reliable information on their financial situation and their low repayment rate. In 2011, to reverse the trend and facilitate farmers' access to bank credit, the public authorities have revisited the use of the interest rate subsidy by setting up in favor of farmers a fully subsidized investment loan called Ettahadi. However, public intervention in the credit system through the subsidy has had very little effect on the demand for finance and a mixed effect on actual access to credit. The results of a survey conducted among a representative sample of farmers in the wilaya of Laghouat as well as the analysis of data from the Bank of Agriculture and Rural Development show that the management of credit risk and its profitability objectives have pushed this public bank to adopt an organizational form that limits the distribution of credit.